The ever-growing upsurge in the cost of daily essentials has led approximately 77% of the working Indians to obtain a personal loan for meeting their ends. However, being a collateral-free loan, its interest rate is higher than mortgaged credit advances. The reason for this loftier interest rate is that the financial companies compensate for their higher risk with this reward. As a result, this rate intensifies borrowers’ risk to pay off dues.
- According to a recent report, the lending industry has seen a whopping growth of 12.7% delinquency on short-ticket personal loans as of March 2021.
In mortgaged loans, the financial companies freeze properties and liquidate them to raise their borrowed capital. Now, individuals may wonder how lenders recover the unsecured credit advance extended through a personal loan if a person dies.
Let’s discover the retrieval process of lending institutions after the personal loan borrowers pass away.
The recovery process of personal loan if a person dies
Lending companies do not possess the privilege to seize and liquidate their customers’ assets after their death. In most situations like this, the lenders get no means but to write off the loan account and leave it as NPA. However, there are some circumstances, as mentioned below, in which they get the opportunity to recover their lent credit:
- Presence of co-borrower
If the borrower took this loan along with a co-borrower, they become liable to pay off the outstanding loan amount. In this scenario, the lending institutions have the authority to take legal action under SARFESI Act. Co-borrowers can either choose to pay off the dues or fight the lawsuit against lenders.
- The voluntary consent of the heir to repay the debt
The next option lending institutions have to recover personal loan if a person dies, is approaching the legal heirs of borrowers for repayment. Lenders can regain funds if they voluntarily agree to pay off the pending EMIs.
In this circumstance, inheritors may also request EMI holidays from lending institutions. This facility increases the loan tenor. For example, if individuals get approval for EMI holidays on 3 monthly EMIs, their loan tenor will increase by 3 months. This way, those heirs of borrowers get some time to do their upcoming financial planning or arrange the necessary funds.
- Availability of insurance on a Personal Loan
If borrowers avail personal loan insurance, it becomes easier for lenders to raise the outstanding EMIs effortlessly after their sudden demise. This type of insurance disengages heirs or co-borrowers from existing financial liabilities of demised persons. It empowers lenders to claim borrowers’ pending dues from the insurance companies.
Thus, lending institutions endeavour to recoup their advanced credit from these individuals or agencies for reducing the number of bad loans.
So, one can confer that the personal loan bestows a lesser burden on borrowers’ families after their death. Individuals must also be aware of why a personal loan can be an advantageous option for them than other credit advances.
Benefits of personal loan
Following are some of the major benefits of this type of unsecured loan:
- Zero end-usage restriction
Individuals can leverage the credit availed through personal loans for various purposes to meet all their needs as it has no user restriction.
However, before availing of this credit facility, individuals must be mindful of the fees and charges of personal loans they have to incur. Else, they may get shocked after noticing an unexpected increase in the cost of borrowing.
- Option of debt consolidation
Individuals can now merge all their instalments into one with the debt consolidation facility of personal loans. It can help them avoid missing repayment as they will subsume multiple instalments into one. Nevertheless, applicants should consider several charges this debt consolidation facility comes with.
- An effortless loan application process
Most of the lenders in India have developed their virtual platforms so that individuals can instantly borrow money online. It reduces borrowers’ hassles to visit local offices to apply for this personal loan.
- Faster loan disbursement
Individuals can get their loans directly disbursed into their savings accounts faster than other credit advances. They can get their emergency loan online within 24 hours after filling in the e-application form available on lenders’ websites. In addition to the online application process, individuals should know how to choose the right lender for their personal loan to stay at a more advantageous point.
- Collateral free loan approval
As mentioned earlier, individuals get this personally without pledging any of their properties as security. It helps them avoid putting their dear properties at stake while getting necessary liquidity.
Besides all these benefits, individuals can also leverage pre-approved loan offers from the leading lenders in India. Accepting this special benefit, individuals can ensure a quick loan application process while availing of financial products like business loans, personal loans, credit cards etc. They just need to mention their contact information and names to check their pre-approved offers.
To sum up, lending institutions confront a significant challenge in recovering personal loan dues if a person dies. In most situations like this, the lenders get no means but to write off the loan account and leave it as NPA. The options they have for raising their fund are from co-borrowers, legal heirs or lending institutions. However, they do not have the authority to fetch the amount rightfully from those entities.
